Nonbank Banks

Nonbank Bank

An institution that provides most banking services without belonging to the Federal Reserve System or receiving a state charter. Nonbank banks do not offer checking accounts per se, but offer credit cards, loans and savings accounts. They developed to circumvent regulations preventing banks from operating in multiple states. They became unnecessary after the passage of the Riegle-Neal Act, which deregulated banks.

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Nonbank banks. Nonbank banks, also called limited-service banks, offer some but not all the services of a traditional commercial bank.

They're typically owned by companies, including insurance companies, brokerage firms, and retail stores to provide financial services without being limited by the regulations that govern traditional banks, such as restrictions on interstate and branch banking.

Many nonbank banks are insured by the Federal Deposit Insurance Corporation (FDIC). Those banks are subject to the same reserve requirements and examinations as regular banks.

Opponents of nonbank banks believe they drain financial resources away from small towns to big cities in other states and undermine the nation's decentralized banking system.